Democratic Staff of the Committee on Health,
Education, Labor and Pensions Committee
United States Senate
July 1, 2004

The Decline in the Minimum Wage for
America's Workers

Low-wage
workers were hit especially hard by the recent recession, and they are left out
of today’s economic recovery.In
the past four years, low-income workers have faced greater poverty and even
growing hunger, while corporations and wealthy Americans reaped the benefits of
multiple tax breaks and saw profits soar.

Profits and productivity are
at their highest levels on record, but for most Americans, wages still lag far
behind—especially for minimum wage workers (see Figure
1
).Corporate
profits have grown 62 percent since just before the recent recession began,
while wages have decreased by 0.6 percent.[1]And low-income workers have watched their wages fall even farther.For seven years, the federal government has failed to increase the
minimum wage by even a penny.Instead
it has remained $5.15 an hour while prices have continued to rise.The federal minimum wage totals just $10,700 a year for a full-time,
full-year minimum wage worker—$5,000 below the poverty line for a family of
three (see Figure
2).

Furthermore, with the
passage of time, today’s stagnant minimum wage has eroded in value (see Figure
3).In the 1970s, the minimum
wage amounted to about half of what the typical American worker was earning.Today, it has fallen to only 38 percent.[2]

The economy is taking its
toll on a broad segment of low- and middle-income families.As wages overall fail to keep up with the cost of living, even middle
class families are finding it harder and harder to afford the American dream.They may be the backbone of our economy, but they struggle each day to
afford the basics: the mortgage or rent, the medical bills, child care costs,
groceries, and electric bills, and sending their sons and daughters to college.

Health insurance premiums continue
to soar at an alarming rate.Employer-sponsored
health insurance premiums increased by 14 percent last year, the third
consecutive year of double-digit increases.Total spending on prescription drugs increased 34 percent.Today, nearly forty-four million Americans are without health insurance,
and the number is growing.

For minimum wage workers, the
situation is even worse.The
federal government’s failure to maintain their wages has had a devastating
affect on them and their families.Nationwide,
30.4 percent of those below the poverty line lack health insurance.[3]And in many of the states we examine, health insurance for the poor is
significantly less common.

Child care costs have been rising
as well.Child care often costs up
to $10,000 per year for one child – more than the cost of public college
tuition.Yet, one-quarter of America's families with young children earn less than
$25,000 a year.A family with both
parents working full-time at the minimum wage earns only $21,400 a year, so
child care can total almost half of their annual income.[4]

Gasoline prices are rising,
too.Americans spend 40 percent
more on gas than they did just four years ago.[5]Nearly three in four low-wage
workers say high gasoline prices are causing financial hardships for their
families.[6]It costs a minimum wage worker more
thanhalf a day’s pay just to fill up a tank of gas.[7]

Raising the minimum wage to $7.00
an hour would benefit 7.4 million workers directly, and another 8.2 million
workers indirectly.[8]And with the federal minimum wage lagging behind, some states already
have led the way with increases of their own.Four states already have increased their minimum wages even higher than
$7.00 an hour.[9]Another eight states have minimum wages higher than $5.15 an hour, but
lower than $7.00.[10]

Opponents of a raise in the minimum
wage often make dire predictions about supposed adverse impacts on employment
rates and the economy.But study
after study shows that there is simply noevidence that
raising the minimum wage has led to higher unemployment, and there is
substantial evidence that a responsible minimum wage increase does not affect
employment rates at all.[11]

Raising the minimum wage can also
help disadvantaged communities.Minimum
wage workers spend their paychecks quickly in businesses in their communities.That additional money goes directly into the local economy as it is spent
on food, rent and other necessities.

In the seven decades since
the federal minimum wage was established, Congress has provided regular
increases to enable the wage to keep pace with inflation—until now.By failing to increase the minimum wage for the past seven years,
Congress has left millions of American workers without a raise for the second
longest stretch on record.Low-wage Americans work as hard as anyone else, and they have
earned a raise.

This report examines how
minimum wage workers in twenty states have fared during the past four years
since the beginning of the recent recession, and describes the benefits of
raising the minimum wage to $7.00 an hour for workers in those states.

This report leaves no doubt
that America’s minimum wage workers deserve a raise.

[2]
In 2003, the median wage was $13.62, which is $8.47 higher than the minimum
wage.Sylvia Allegretto and
Jared Bernstein, “The gap between minimum and median wage earners
continues to grow,” Economic Policy Institute, October 2003.

[3]
Robert Mills and Shailesh Bhandari, “Health Insurance Coverage in the
United States: 2002,” U.S. Census Bureau, September 2003.

[11]
Jeff Chapman, “Employment and the Minimum Wage: Evidence from Recent State
Labor Trends,” Economic Policy Institute, 2004.And in one of the most compelling studies, David Card and Alan B.
Krueger find that the 1992 New Jersey state minimum wage increase had no
negative effect on employment in New Jersey’s fast-food industry.David Card and Alan Krueger, “Minimum Wages and Employment: A case
study of the fast-food industry in New Jersey and Pennsylvania,” American
Economic Review, vol. 84 (4), 772-793, 2004.

This document is not necessarily endorsed by the Almanac of
Policy Issues. It is being preserved in the Policy Archive for historic
reasons.